A proposal worth supporting

[Beavah]

Yah, my knowledge of economic policy is a bit better than my knowledge of gun policy, eh?

 

So I thought I'd pass along this article:

 

http://www.nytimes.com/2013/01/20/business/a-fed-voice-asking-to-cut-megabanks-down-to-size.html?_r=0

 

Da original speech is worth readin' too. I hadn't realized how much da big banks were soaking up monetary policy and funneling it into their trading portfolio rather than into loans.

 

This to my mind is a traditional conservative position, and I'm glad it's finally getting a public run. Rather than creating 2000 pages of law with 10,000 pages of regulation like Dodd-Frank, most of which just costs money and accomplishes not much, yeh do the obvious thing. Yeh break up big banks, yeh re-establish firewalls between commercial banking and investment banking and insurance and futures/derivatives trading, yeh get the taxpayers out of insuring anything other than commercial banking and yeh eliminate executive and director immunity.

 

In other words, yeh return to an era of private accountability, where da public can afford to let any set of firms go bust as a way of being accountable.

 

I doubt that da Democrats would oppose it, and if da President got behind it we could probably repeal 80% of Dodd-Frank. Only question would be whether enough Senators of either party have been bought by da banking lobbyists to kill it quietly and anonymously.

 

Beavah

 

[JMHawkins]

...yeh get the taxpayers out of insuring anything...

 

this would be a huge step forward. FannieMae, FreddieMac and the FDIC were the gasoline on the fire of the banking crisis. And TARP was tossing a keg of gunpowder onto the mess.

 

...other than commercial banking...

 

Why allow socialized insurance of commercial banking? There still moral hazard there too.

[skeptic]

Not sure the definition of "commercial banking" in this case; but if it is making sure my small deposits are covered, then it probably is desirable. After all, it was partly due to the lack of that protection that the depression had such an impact. If a small bank goes belly up our money should still be protected in some manner; otherwise people will again be putting it in mattresses and burying it in the yard.

[acco40]

If a small bank goes belly up our money should still be protected in some manner

 

Why should the size of a bank matter? If I lose $100 at ChaseManhattan that's okay but if it is by my local community bank it is not?

 

What is being suggested by Mr. Fisher, Dallas Federal Reserve Bank head, was not deposit insurance based on the size of the bank but based on the type of investment. He suggests only commercial banking operations receive protection in the form of federal deposit insurance. Other activities securities trading, insurance operations and real estate should fall outside any backstop. Furthermore, he recommends that these banks require customers and trading partners to sign an agreement stating that they understand the business they are conducting is not covered by any federal protection or guarantees.

 

Now as for myself, I know that even though I may have $150,000 invested in a commercial bank, FDIC only covers it to $100K. Also, not sure exactly what kind of "backstop" Fisher is referencing (federal bailouts maybe) but didn't know any guarantees for securities trading, insurance operations, real estate, etc. existed as he implies.

 

 

[Eamonn]

While I understand global markets and the need for them.

I'm a very local type of fellow.

I can support efforts to change things half a world away.

But more often think that I stand a better chance helping or changing things locally.

 

We used to have a great small town bank. It had three branches all in local towns.

The family that owned the bank were part of and supported the community.

My Mother-In-Law served as Den Mother to the bank President.

They knew what was going on in the area and were very much involved in helping make things better.

Over time things changed.

First they went into a partnership with a bigger bank and then the bigger bank became part of a big bank based in New York.

While the local branches are still there and the people who work in them are locals, decisions all hail from New York.

 

I kept a few business accounts in our local bank, but because they were slow in offering an ATM card I switched to a fair sized bank for my personal accounts.

A few years back this bank upset me by charging me a silly fee and I got mad and closed my account.

Opting to go with a Credit Union.

Over time I moved all my accounts to the Credit Union.

I like the idea that my money is being used to help other Credit Union members and of course they aren't hitting me with silly fees.

This year it seems the Credit Union made more money than they expected and have sent ten million dollars back to their members.

My money is insured and I feel that it's safe.

 

For a very long time I've had a strong distrust for big banks and insurance companies, seeing them as a necessary evil.

My feeling is that these big banks get away with a lot of the stuff that they get away with because we let them.

For me? I'm done with them.

Ea.

 

 

[JoeBob]

I'm on board. The banks are subsidized and insured to the point that they can't lose money? But everyone else is losing money?

 

I've always been curious about the FDIC limit of $100,000. Is that limit per individual or per account? ie - if you have 1.5 million to invest do you need to spread it around into 15 different $100k accounts?

[CalicoPenn]

JoeBob,

 

The limit is now $250,000 per individual per bank per ownership category.

 

For instance, if you, Individual JoeBob, has $100K in a checking account, $100K in a savings account, $25K in a money market account, and $30K in CD's at the bank (total = $255K), the FDIC will add all of your accounts up and insure $250K of it.

 

If you want to ensure that all $1.5M is insured, you'll have to go to multiple banks (not branches or subsidiaries). You would have to open an acccount at the First National, the Second National, the Third National, etc. A new account at the First National branch in the next town over will be added to your total for the bank. To further keep you on your toes, if First National buys Third National, and First National goes under, the Third National accounts are only insured in conjunction with the First National accounts, so if you have 250K at First and 250K at Third, you're only insured to 250K total.

 

But, that doesn't necessarily mean you can't be insured for more than 250K at one bank - there's also the "ownership category" to take into account. Joint Ownership is considered a separate ownership category than Individual Ownership, so you can have up to 250K in individual acounts, where only you can take funds out, and you can have up to 250K in joint ownership accounts, where you and your spouse have equal access. Now you're up to $500K.

 

Have an IRA or 401K through the bank? It's another ownership category and now another $250K is insured.

 

Want to create an irrevocable trust to pay for your children's college? A new ownership category and you're up to a million insured at one bank. Want to put money away in a trust for your chldren but want to be able to take it away if they turn out to be bums? Now you create a revocable trust, which is another ownership category - and now you can make sure $1,250,000 is insured in one bank.

 

One last thing - the FDIC insures deposits, they do not insure investments. Maybe it's just a matter of semantics but so that we're speaking a common language, if you invest in a bank, that is buy stocks in the bank, then your investment is not insured. When you make deposits into a bank account, even a savings account, you aren't investing in the bank. For savings accounts, mutual funds and certificates of deposit, the bank is paying you for borrowing money from you - that's the interest you get. It's not a return on investment.

[Beavah]

Yah, hmmm... Careful, there. You're mostly right, CalicoPenn, except that mutual funds, includin' money market funds, are not FDIC insured. Only deposit accounts and CDs.

 

This is where da mixing of investment vehicles and traditional deposit accounts in "big" banking and insurance companies is confusin' and problematic. Plus, in today's interest rate environment, banks are typically not makin' money on da interest rate spread on your deposits. They're makin' money on fees for moving your money around into different investment vehicles and repackaging derivative securities as investment vehicles. And they're makin' money on their own portfolio and trading desks.

 

B

 

 

 

[Second Class]

FDIC insurance is now to 250,000K, albeit temporarily. There was such a bleeding of deposits being withdrawn that it was near 1929 style banking panic.

 

The Clinton era removal of the banking limitations was lighting the fuze of this mess. IMHO, the Federal government has zip, zero, nada business insuring private banks which deal in stocks and bonds, international finance, arbitrage, and real estate.

 

The people and businesses who bought houses they couldn't afford, and businesses who sold them, should have been allowed to go bankrupt. Insuring them against loss, and reducing the amount of debt they willingly incurred is an affront to every working American who has played by the rules and paid their bills. It is outrageous.

 

Allowing banks to cross state lines was a terrible idea. One we are still paying for, and will pay again and again for.

 

Sorry Beaver, if you think a majority of the Democrats will vote to repeal Dodd-Frank, you're deluding yourself. It is a cash cow for them.

[CalicoPenn]

Beavah,

 

You are correct that Mutual Funds are not insured by the FDIC (as they are an investment) but Money Market Deposit Funds are insured by the FDIC. I'm pretty sure I said Money Market accounts and not Mutual Funds. But I can understand the confusion as some Mutual Funds call themselves "Money Market Mutual Funds" but they are still Mutual Funds.

 

 

[BS-87]

This is a tricky subject in general.

 

The traditional conservative approach to this subject is largely credited with allowing the Great Depression to happen, and made the people beg for federal activism and intrusion into the private sector economy. Granted, the crisis was made possible by the availability of credit thanks to the institution of a central bank, which was a very progressive idea itself that conservatives balked at.

 

The system of credit made possible by the progressive movement at the beginning of the 20th century did help usher in an age of the middle class, but also set us on the train tracks that lead to the brick wall we're faced with now.

 

So I largely say it's tricky because traditional conservatism finds its philosophy tricky to operate effectively in a system which requires constantly expanding progressive activism from the centrally located power.

 

In short, I really don't think that the government can get out of the business of insuring private capital so long as our economy is built on credit and money multiplication. And while the economy would be much more stable as opposed to a constant bubble and burst of sectors made possible by the FED and FDIC, getting rid of this centralized power would result in a lower standard of living for the "everyman", which is not something Americans will probably ever be able to support again, as the American Dream is now reliant on the availability of credit.

 

So Beavah, while I admire the notion that conservatism is not long gone and private accountability is the standard, rugged individualism has been replaced in American hearts with the desire to be treated "fairly".

[acco40]

FDIC insurance is now to 250,000K. That is correct if the "units" are in tenths of a cent. Otherwise, it is $250K or $250,000.

[packsaddle]

See what you started, Joebob?

Can anyone remember what the thread is actually ABOUT?

[JoeBob]

Mea culpa, mea culpa!

 

I think the original topic was:

HANG THE BANKERS!

Can we use the small intestines of lawyers to string 'em up?

 

But thanks to all for clarifying the FDIC limits thingie.

 

 

 

[Beavah]

HANG THE BANKERS!

Can we use the small intestines of lawyers to string 'em up?

 

Nah, yeh should know by now that lawyers have no guts.

 

Besides, it was cut da bankers up into little pieces, not hang 'em!

 

B